Episode 6 | What Nobody Tells You About a Life-Changing Deal (Erich Tauber)

Christian: How did you start your morning today?

Erich: I took my boy and sent him off to school, and I was playing tennis from seven to nine like every week.

Christian: When did you stop saying you are the CEO of Themis?

Erich: I think this started more or less quickly after the acquisition by Merck, because we were then more or less a hundred percent owned subsidiary of Merck and I was a small employee from one day to the other.

Christian: Okay, can you bring me back to the beginning, when you decided to start?

Erich: Yeah, I was starting my professional career as a pediatrician in a hospital and always liked the idea of developing drugs. I was with the Austrian biotech Intercell, and they were in vaccine development. I was leading a project which was licensed from a small company and was brought up to licensure, and I thought that I should be able to do the same as those guys did.

I was looking for a piece of technology and I was making many phone calls and talking to people who I knew in the field, and I talked to an old friend in France and he said, yeah, I have a good project from the Institut Pasteur, why don't we meet in Paris to talk to those guys?

The idea more or less was, at some time there will be pandemics, there will be new diseases, and we need to develop platform technologies to allow us to react quickly. And this was in 2008, 2009, to start the company.

Christian: Were your partners certain about pandemics at that time? What was the topic back then?

Erich: There was swine flu all over the place, there were outbreaks. It has been there and it will be there, but people don't really care about certain outbreaks. So we were quite surprised that people took the COVID outbreak much more seriously than other outbreaks in the past.

Christian: You thought about, with the partners, a potential pandemic around a certain disease, and you had to pick one. How did you do that?

Erich: The understanding was that we need to find some kind of model disease, which in our case was chikungunya, which is a difficult disease and name because nobody can pronounce it. And the Institut Pasteur had some preliminary activities going on, because some of the French overseas territories had some burden of disease, especially in La Reunion. We were starting this, and the idea was we validate this as a travelers vaccine, and the technology should be then a plug-and-play technology which would then be open for other disease X models.

Christian: You talked to the partner Pasteur. What happened next?

Erich: We were developing the vaccine for chikungunya, did phase one studies, phase two studies. In the meanwhile there were a number of outbreaks, like Zika virus, for instance. Zika was big in the US, pregnant women didn't dare to leave their homes. It was big during the Rio de Janeiro Olympics, and some of the athletes didn't want to travel to Paris. It's not really a breakthrough in terms of vaccine development. There were many vaccines there, but nobody really commercially thought about it.

Another milestone was CEPI, which was an initiative from governmental and non-governmental organizations, largely backed by the Gates Foundation also, who said many of those outbreak vaccines are commercial failures, like Nipah virus for instance, or Lassa virus. And they had the idea that if pharmaceutical companies don't dare to develop the vaccines, this non-profit organization should make the vaccine.

So we were starting making the vaccine for MERS, which is similar to SARS but something different. We made the vaccine for Lassa and for Nipah disease, and this allowed us to grow the company from like two or three people in the beginning until 35 people at the end of 2019, when we were starting an R&D collaboration on an undisclosed vaccine target with Merck.

Christian: So this is 2009, 2010. How did success feel at that time?

Erich: I think one of the biggest successes for me was to have not total freedom as the CEO of a biotech company, but I had lots of liberties in how I spent the work I'm doing. And of course I was not free at all. I had to talk to too many investors, not everybody I met was super friendly and super kind to me. I had nice and not so nice experiences with partners or employees, but I think the biggest success to me was to feel much more liberty in my day-to-day work than when I was employed in another company. So I think this was the biggest success.

And commercially the success was very much being able to close a financing round and secure the further development of the company. And one of the biggest successes was the contract we got from CEPI in, I don't know, 2015, I believe.

Christian: So it was quite some time between the beginning and the first big round, 2015. How difficult was it for you keeping the faith throughout the years, knowing this is tough, this is difficult?

Erich: I think it started in 2008 and 2009, when I had my first discussions with bodies who would offer some non-dilutive funding from governments. This is now the post-Lehman financial crisis, it's so difficult to raise funds. And I thought, oh, it's super easy to do this now, because nobody is founding a company now, so it's anti-cyclic now and this will be easy for me. It took us then more or less half a year, nine months to get first investor traction, and from signing the term sheet until the cash was in the bank account it was 12 months, and we had something like 500 euros in the bank account. So it was super difficult in the beginning.

It was more likely to fail than to succeed in the first year, and I was naive enough or young enough to accept this. I thought, when this is not going anywhere in the beginning, then I go back to industry and find a new job. I think this has changed over the years, because I realized that even in difficult times I was able to make it happen, so it will be possible again. But it was quite stressful. We never had funded the company for longer than 12 months during the 13 years.

Christian: Well, there are companies right now not funded for more than six months. I think many people can relate right now. But you mentioned something, having optionality. What if this doesn't work?

Erich: I think optionality is something which entrepreneurs and founders should not have. Because if a founder or an entrepreneur has option one, develop the company, option two, going to industry, option three, going to HR, option four, going to this and that, with all the options you don't take it seriously. I've seen this in my company after Themis. You need to accept the blood, sweat and tears to make this happen. I don't think that, if my key employees would have had the option to go back to Sanofi, to go back to the university, to go back to something else, then we would have tried hard enough.

Christian: I agree with that. It reminds me of a speech from Arnold Schwarzenegger. He once said you shouldn't have plan B, you should always stay with plan A. Some biotech founders would say you need some slight optionality in your pathway, and that is also a little bit true, I think. But not staying in the company or changing the company, but choosing your pathway within the company and trying to find ways.

Erich: Totally agree. You should have options, you should build options, but you should not have the option to take a better pay.

Christian: How did you feel at that time, before Themis really made money? Was this a convenient place for you? Was this something you could live with?

Erich: I mean, before I started Themis I was commuting to Germany, I was taking a flight every week like many others do. We got a baby during this time and I thought, I don't want to do this for the rest of my life. I stopped commuting when the baby was there and was starting the company more or less as a stay-at-home dad during this time. I always felt that it was on the one hand very easy for me, but I had many, many colleagues and workers with me who said, I never understood how you are able to have a call with a VC firm with the baby around you.

And in 2020 it was super normal that everybody was sitting in their home and the children were running around. But I found this freedom for me super fine, and I accepted the fact that the company needs more funding and eventually I will need to find a new job if the funding is not coming. So I was not super desperate, and all the people I hired accepted this.

Christian: I think this is very, very valuable to understand. Your main driver was liberty and the freedom of having time for a family, but also personal liberty, doing things that are important to you. And whenever this was over, you accepted it, because it was a present in itself, right, to have the time to do things. I think this is an important element, because you cannot lose, right? I think this is something that drove you, but also that kept you balanced, right? Speaking of balance, you play tennis now. Did you play tennis at that time, or did you have other means to recover?

Erich: I mean, I played tennis all my life more or less and I did other things also. I tried to do some sports, but I was heavily traveling. Like in the last year we were trying to go IPO, to do fundraising, it was a bit more difficult with international travel.

Christian: That means you left out the chance to do sports too. Did you feel that?

Erich: Yes, yes. Sitting in the plane every Sunday, flight to San Francisco, then fly over to New York the next day and flying home on Wednesday is tough, and flying within Europe twice a week is also tough. So I don't want to.

Christian: So is this part of the personal price you have to pay that nobody sees?

Erich: I think for some time during fundraising, I don't know how fundraising is now because everybody is using Teams and Zoom and whatsoever, but in those times it was super tough. We had lots of meetings where we just flew into New York to go into a meeting room where there was a phone, and the guy was sitting not in New York but in San Francisco.

Christian: So you have to be there.

Erich: I think we had to accept the fact that people who want to invest in you don't treat you at the highest level sometimes. I was asking for something and those guys very often give the impression that they are king and not I'm the king.

Christian: You're speaking about difficult investor conversations, right? Is there a very good investor conversation?

Erich: We had many very good investor conversations, because at the end investors invest into the person, and the investor needs to like you and you need to like the investor. If this is not going to be on a personal level, then nobody cares about the technology. I think the more advanced we were, the more serious the talks were. And I think the easiest fundraising was of course during COVID, where at the same time when we were preparing for the transaction we were preparing for a Nasdaq IPO. This was a super easy fundraising, because everybody was thinking we need to have a COVID vaccine, and where's the check. But before that it was super difficult.

Christian: Tell me more about that last part. So the investor conversations changed up until COVID. Why was there a difference?

Erich: I think in the beginning of March people were taking COVID seriously, not so before that. I remember the last conversation I had in New York was March 8th, and we were talking to big VC funds. We talked to them about chikungunya, which they didn't care about. We talked to them about this strange disease out of China where we could offer to make a vaccine, and they said, no, no, we don't care about this, talk about cancer, why don't you make a cancer vaccine?

And this was more or less when it all happened. Then more or less from one week to the other, companies like Moderna and BioNTech completely forgot the cancer and have never done anything else than COVID vaccines, and same for us.

There were many, many companies finding a bonanza in these COVID vaccines and COVID diagnostics, COVID treatment field, of course. And I believe it was very difficult for the investors and also for big pharma companies to differentiate who's having a real product and who's having old ideas with no substance.

Christian: From outside it could seem like a gold rush, right? But you, within a company, are always certain that your product is the next big thing. Let's talk about the certainty or the conviction. I think it's a different type of conviction you need in the beginning, starting a company, but also developing it through and bringing it to the end, right?

Erich: I was always trusting the technology because it kind of worked in our hands. We had very nice animal data, we had very nice phase one data, so we were always trusting in the technology. Commercially it's another story. At the time when we were developing this, there were a number of technologies, viral vectors were pretty hot.

Nobody was believing in mRNA vaccines. There was lots of money going into companies like Moderna, but more in the idea of cancer and something else. With vaccines, everybody thought that with a viral vector you can make a vaccine, but nobody trusted us that there will be an outbreak, that you need to have pandemic vaccines, and nobody cared about the chikungunya vaccine.

When we made the transaction with Merck, this was happening in May 2020, this was the time where we were preparing to start a phase one study for COVID, and Moderna had started their phase one study already. We were a hundred percent certain that our vaccine would be successful in the clinics, would go to market, would go to approval and would protect people. So from a technical side of things we were always very certain that this would work.

Christian: Was there ever a moment that challenged certainty, maybe a run rate of less than five months, or something else?

Erich: I mean, we had lots of difficulties. We had a manufacturing firm which developed a phase one product and broke our glass vials in the fridge. We were funded to do this phase one study, but we were not funded to kind of redo a manufacturing run. We were working with companies who went out of money shortly before they should have started, and things like this.

In a biotech setting, you plan for something and it always takes a bit longer and is a bit more expensive than you wish. So there are lots of technical hurdles, and we also had many investors who kind of gave us a very good feeling after the meeting and then never bought in.

Christian: So would you say that it is wise to think you actually need twice as long and twice as much?

Erich: It's very difficult to answer this, because this also means you don't believe your plan. When you believe it can be done for 10 million, but your subconscious mind tells you it will take twice as long and will be much more expensive, I think people will read your mind. I always tried to kind of play aggressively and execute aggressively, and I never planned for substantial backups or backup plans.

Christian: But how did you know that this is the right way?

Erich: I think the good thing was I didn't have the options, so you had to make it reality. At the same time as we were founded in Austria, there was another company nearby, and all the people in this company, we know them, and they were in a similar setting. We were funded more or less as a founder-funded company with maybe smaller European investors, and they were funded from one of the largest investors in Europe.

They had Nobel Prize laureates in the company, and whenever we made a 5 million round, they made a 50 million round. And when we made a 10 million round, they made a 100 million round. But at the end, we were forced to be super focused. We were forced to work with minimal employees, minimal effort, and really focused only on success.

I believe the advantage of this was that we didn't lose focus on the important things. But of course we were more often lucky than unlucky, and we made right decisions more often than poor decisions.

Christian: So is this something that you take with you now, in the future, when you work with other biotech companies, you are advisor, you're investor? The learning of you have to keep your resources low in order to be creative in the future. Do you think you've made enough to make better decisions?

Erich: After we were happy campers in the Merck empire, there was a management buyout which was heavily funded from Merck, and I think this allowed a completely different mindset. I think having the problem of being fully loaded with cash as a biotech company sounds better than it truly is.

When I talk to founders, I believe they need to be super focused and super convinced that this will be a success and this will be their ticket to a life-changing experience. But it needs to be a completely different mindset from being an employee in a very much regulated big pharma or corporate environment. It's a completely different approach to risk-taking than we would see in a corporate setting, but also the mindset of saying, yeah, we have now funding for the next three years and we can do this and we can hire people and let's review in a year, spoils you.

So it's much better to force yourself to be successful in a year than to say, in a year, didn't work out like this, but let's see in a year from now. I think a successful biotech company needs to be working under so much pressure to believe in the success and make the success happen.

Christian: That was your blueprint, having massive conviction that this has to work, and that was your superpower, probably also your recipe for success when you talk to investors.

Erich: Yeah. On the one hand it was a conviction, but it was not a conviction based on there's no data but I'm so smart, I'm just convinced. I think what made our success possible is that we had scientific evidence and we made progress. We made promises to investors and we delivered on those promises. Many technologies, compared to our technology, are much more high-risk projects with difficult-to-achieve early evidence. So I was always trying to find something where evidence can be created in the near term.

Christian: Take it back to the moment when you found out that the Merck deal was real.

Erich: The Merck deal was super difficult, because during this time there were difficult and not so difficult things. I remember that it was on the Easter Sunday, which is a big thing in Europe, where everybody's on vacation, but this was during lockdown, everybody was sitting at home kind of bored. I talk about investors, I talk about senior management at Merck, I talk about lawyers, so everybody enjoyed having a phone call on the Sunday morning or Sunday evening, on Easter Monday or Easter Sunday, because they anyway couldn't meet their parents or whatever. So this was the easy thing.

The difficult thing was that COVID was super emotional in those times. With the Institut Pasteur we had some sort of public interest in France in this company, and there were certain phone calls where big-name French politicians were in the call. We had to balance national interests in Europe, company interests, personal interests from the founders. We had investors who were invested for 12 years in the company and investors who were invested just four months in the company.

So some people were thinking, I want to get out of this company with a multiple of five, this is good enough, and others said, we just went into the company, we put this to Nasdaq and the sky is the limit for us. So this was the difficulty.

But I remember I went to our lawyer on, I believe, May 25, Monday evening at 7:30. It was like the third meeting we had, because the others were postponed because something was not right. And the notary said, so we are signing today, and I said to the notary, we will see, it's 50-50. This was like half an hour before the signing. So it was very difficult to get this done because there were so many interests in this transaction. It was not so much investors, it was really some of the European governments who had local interests.

Christian: Okay, so was it your dream deal at this point?

Erich: I remember we had one investor in the company, this was during the C round. We had the option on the table to sell the company or to make the C round. We decided to make the C round, and then shortly after we had dinner and she said, the deal was not good enough for you, you need to make a life-changing deal and not a deal which allows you to kind of pay for the private school of the kids.

It should be a life-changing deal because you've worked so hard. And then she said, trust me, I will make you a life-changing deal. I'm very grateful to have had her as an investor and as a friend for many years, but I'm not sure how much of the deal she made and how much we have made.

Christian: Very nice. When you say to your notary it's 50-50, what goes through your mind? Do you think about all the alternatives you have?

Erich: We had made a large D round in November 19, and with this D round, this was the first time we really had traction with larger US-based investors. So what we have done in the March, April timeframe, we have of course talked to investors, we have talked to companies like Sanofi and Merck and all those potential buyers. And we went for this dual tracking. Dual track is like, the youngest, most inexperienced investor tells you from the first day he talks to you, expect to do dual tracking every day, or triple tracking, because you need to prepare for this and that and this and that.

But we really prepared for a crossover round for Nasdaq and we had lined up a prominent consortium and everything was ready to be shared. We had a kickoff meeting with investment banks for the Nasdaq IPO, and this was happening in May. Part of my time during these days was to kind of not piss off the investment bankers from the Nasdaq transaction. The alternative has always been, if the Merck deal goes sour, then we still can go the Nasdaq route, but at some time this horse would have been dead.

Christian: So you prepared alternatives, which is always a good recommendation in negotiations, to have alternatives ready.

Erich: But I think in all fairness, we were working, a few people in our company, the lawyers, the investment bankers, from eight in the morning until early in the morning, seven days a week. I think this is possible for a few weeks, but maybe not for a few months. Of course we were super happy that this happened. If we would have left the lawyer's office with no deal on this date, I don't know if the Nasdaq route would still have been possible or if everybody would have been so exhausted, because the IPO route would have taken us three more months or so.

Christian: So you thought about being exhausted or not having the same pace. I think it's part of every entrepreneur, of every major business, when the CEO, the leaders don't have energy, nothing happens.

Erich: During heavy lockdown, the good thing was I couldn't play tennis, I couldn't go on vacation, I couldn't do anything, so I was forced to stay at home and work. So this was the easy thing. Of course there was a price for that, and I was happy that the transaction was over after a certain period of time.

Christian: What part of entrepreneurship do you miss? That moment that wins, maybe? No?

Erich: I think this was nice, of course. Maybe it's like Christmas as a small child. My children are happier the 24 days before they get the presents than when they see the presents. Being an entrepreneur means you never know how the future will be looking like. And of course, getting the transaction done, getting also a financial return, is super nice. But I believe the interesting thing is that you don't know what will happen.

Christian: I think that's also the reward, right? Embracing that uncertainty as a reward. How did that journey change you as a person? What is now important to you? What hasn't been important before?

Erich: I'm not sure if I've changed so much. I think during the deal it was different, because before the deal I was very much in the media. Because we were a company working in the COVID field in Austria, I was having interviews. I was on TV and on radio and so on. And this was of course doing many things with my ego. Then after the transaction, being a small employee of Merck, I was no longer in the media. But many people knew about the transaction, and people like to meet successful people or people which they believe are successful. And I think I had this feeling of being invincible.

After the deal, I had one person on our board, a close friend, who turned out to have developed into a close friend. He had done transactions before and he said, you need to be careful, because the transaction is doing something with you. He now refers to it as the post-deal crisis, because in the beginning of the deal you have lawyers, bankers, everybody tells you you're the king of the world. And then for some time, people like private bankers invite you to expensive dinners or do whatever. And of course this is fading after some time. I was having my job at Merck and this was not fulfilling, to be honest.

Christian: What's fulfilling now?

Erich: I have tied my knots with Merck a year ago, and I'm trying to fund new companies. I'm trying to work with young entrepreneurs to make this happen. I'm working as a venture partner for a venture fund to make things happen.

Christian: So this is your next chapter, working for the venture fund?

Erich: It's really, I mean, I'm there as a venture partner, not as a full partner. So I see my role really more as somebody who makes. I want to make my hands dirty. I want to have blood, sweat, tears. I don't want to sit in a boardroom and give good advice.

Christian: Okay, very good. Good to hear. In which phase are those companies right now?

Erich: Early stage. So it's until sometimes animal data.

Christian: What are the advices you usually give those companies?

Erich: I think when it comes to optionality, I've seen so many people who wanted to join a biotech company, but didn't want to get wet or dirty or whatsoever. Everybody likes to help a bit, fly to fundraising meetings, but doesn't want to get exposed. And I think you need to get fully exposed and take risks and accept the risks.

Christian: One more.

Erich: One more piece of advice. I think very often people fight with their egos, and I might not be much different here, but funding a company, and asking investors, asking non-dilutive funds, asking partners for meetings with a big ego is very difficult. I had so many meetings, hundreds of meetings, where people said something like, I wish you all the best and I mean it, but this will never work. And I think you need to accept that rewards will take quite some time.

Christian: Very valuable. One last thing. Do you have a recommendation for a book or a movie or something that inspired you lately?

Erich: I saw the Facebook movie, as they were fundraising, and of course that's a recommendation because it's completely different from what I have seen. There's a very nice Netflix on how Spotify was created and funded, including all sorts of founders' turmoil, founders' difficulties. I think that's something I would recommend.

Christian: I'll watch it again. Thank you very much for this episode. I really enjoyed it. It was great fun. We're at the end. Hopefully we see each other again here or somewhere else. And thank you very much again.